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Insurance agency and brokerage acquisitions in 2019 started with a bang in January and finished the quarter ending March 31 with the second-most active first quarter on record. That trend continued in the second quarter with 169 announced transactions, the most of any second-quarter period, and puts the first-half total at 328 transactions, second only to 2017’s 333 transactions.
The private equity-backed/hybrid, or PE-hybrid, buyer group — which includes privately owned buyers with material internal or external acquisition financial support in addition to traditional PE-backed firms — far outshined all the other buyer groups, accounting for 214 transactions, or more than 65% of the transactions for the year thus far. There were 66 acquisitions by privately owned firms and 33 by the public brokers.
Caledonia, Michigan-based Acrisure LLC reported the most activity for the first six months of the year with 39 closed transactions, down slightly from the 42 transactions competed during the first half of 2018. Chicago-based Hub International Ltd. was second, completing 26 transactions, down from 33 in 2018. The third-most active buyers this year, Lake Mary, Florida-based AssuredPartners Inc. and Fort Washington, Pennsylvania-based Patriot Growth Insurance Services LLC, a new PE-hybrid buyer this year with a very strong start, both completed 21 transactions through the six months.
The growth trend in sales has been dramatic since 2008 in spite of individual periods of activity pullback, while all but one quarter in the past nine have fallen above the trend line. In fairness to the historical information, like many other activities in the world today, the reporting and capturing of information on agency acquisition activity is better today than it was in the past. But there is no doubt the trend of agency and brokerage M&A activity continues to grow across virtually all sectors of the buyer community.
Property/casualty brokers continued to dominate the sell-side M&A landscape, with 169 of the 328 transactions, or 51%. Employee benefits brokers were the next largest group of sellers, coming in with 82 transactions, or 25%.
Agencies based in Canada continue to grow in count and percent of total, now representing over 8% of the reported transactions. We’re seeing more Canadian firms buying up Canadian agencies, as well as several of the larger U.S. firms making concerted efforts in the Canadian marketplace. Second only to the 39 agencies from California that have sold this year, Canada had 27 sellers, followed by Texas with 25, New York with 23, and Florida rounding out the top five with 15.
So far in 2019, there have only been a couple of Top 100 agency sales:
● Clearwater, Florida-based Bouchard Insurance Inc. sold to Marsh & McLennan Agency LLC in January.
● Phoenix-based Lovitt & Touché Inc. sold to Marsh McLennan Agency in April.
● Dallas-based U.S. Risk Insurance Group LLC was acquired by USI Insurance Services LLC during the second quarter.
Current valuations of agencies has made the prospect of internal perpetuation transactions significantly more difficult for agency owners to justify, given the spread between internal value and third-party valuations.
Even the most die-hard privately owned agencies are being tested on whether they really want to remain private if an outside buyer is willing to pay 50% to 75% more than owners can get from an internal succession plan. With the agency owner population still creeping up in age, more and more owners are facing the dilemma of wanting to remain private but seeing the kinds of returns that are available in the marketplace today.
Acquisition activity in the insurance distribution field continues to reach new peaks every year. A combination of available and willing sellers and a growing and aggressive group of buyers has made this a very competitive arena for both buyers and sellers. What was once dominated by a few publicly traded firms and a large group of privately owned firms, the PE-hybrid firms with almost unlimited financial backing have radically changed the face of agency owner exit strategies over the past five-plus years. With an industry that is low on capital needs and high on recurring revenue and profitability, where the economy is strong and money is cheap, there really is no end in sight for this dynamic M&A world we’re all living in.
But don’t fool yourself. It will return to some measure of normalcy, albeit likely not what it was 10 years ago or even five years ago. As the saying goes, whatever goes up must come down at some point, and we are certainly riding high in the market today.
Timothy J. Cunningham and Daniel P. Menzer are principals at Optis Partners LLC, a Chicago-based investment banking and financial consulting firm that serves the insurance distribution sector. Mr. Cunningham can be reached at 312-235-0081 or firstname.lastname@example.org; Mr. Menzer can be reached at 630-520-0490 or email@example.com.
The red-hot market for brokerage mergers and acquisitions continued to reshape the rankings of the largest global and U.S. brokers last year, with some substantial and longtime firms being absorbed by even larger rivals.